Is SmartBCH burning BCH coins a problem?
SmartBCH assets are currently under seizure by an insolvent CoinFlex. This is a complicated situation, detailed breakdown can be found in Episode 52 and Episode 53. Recent updates on Episode 60.
It is critically important to research SmartBCH and understand the risks thoroughly before using it in any capacity at this time. Further updates will of course appear on the podcast where notable change has happened, but The Bitcoin Cash Podcast suggests avoiding SmartBCH entirely at this time.
For a detailed audio explanation, check out this segment from The Bitcoin Cash Podcast.
The phrase "burning" invokes a strong negative sentiment in people, due to our intuition that it destroys (scarce, physical) resources. As there is a limited cap of 21 million Bitcoin (Cash), it is logical that new users are concerned when they discover SmartBCH coin burning. Won't this be a problem when we run out of coins (especially if interest in SmartBCH/coin burning escalates)?
There are two main reasons that SmartBCH coin burning will not impractically deplete the supply of BCH - no matter how many coins are burned.
- Infinite divisibility: The entire world economy, every transaction by every person on the entire planet, could operate on 1 BCH, 0.0001 BCH or even a remaining supply of just 0.00000000000001 BCH. Of course at that point, each tiny sliver of BCH would be immensely valuable and people would have switched to dealing in far smaller sub fragments with appropriate names for convenience - but fundamentally there is no issue with how much BCH remains to be traded as it can always be divided further. Currently, each BCH can be subdivided down to 100 million sub-units (called a "satoshi"). That is the level programmed into the BCH node software, but if there is a need to deal in smaller units then those satoshis can themselves be split into smaller and smaller units, as small as needed. As Bitcoin is just arbitrary numbers in a computer, it is intuitively difficult for people to grasp the concept that it can be infinitely divided but more divisibility does not create more supply. If you imagine all the Bitcoin Cash supply as a gigantic pizza, adding further divisibility below satoshis would be like cutting all of the existing pizza slices into smaller slices - making it easier for those who already had pizza to continue sharing and trading pizza with others but not creating any new amount of pizza.
- Supply restriction impacts price: Any amount of BCH is sufficient for trade, but nevertheless no matter how much SmartBCH usage occurs it will not cut the BCH supply down to just 1 single BCH. Burned coins (eventually) impact price, which lowers burn rate (in BCH terms, but not fiat terms). Consider that if BCH is $300 / coin, then a burn of $600 / day is 2 BCH. Eventually, restricted supply will pump the price, and once the price rises to $600 / coin, then burning $600 / day is now only 1 BCH. At $1200 / coin, the same demand burns only 0.5 BCH. If SmartBCH is popular and getting an escalating amount of usage, it means a lot of people are burning their BCH to use SmartBCH apps, plus a lot of activity is happening in the BCH/SmartBCH ecosystem attracting increased investment, and the price will increase as a result. Rising price reduces the burn in BCH terms, and increased burn increases the price. This is a virtuous cycle, which continues as long as SmartBCH remains a popular and useful network that people are willing to transact on. Price has no cap, it can increase until fiat value is irrelevant, and even then it can continue increasing against real goods (the amount of land, gold or rice purchaseable per BCH). At any scale, including global scale, the utility of SmartBCH will be a huge driver of economic growth as savers get rewarded by the "crowdfunding" of BCH burns.
These factors explain why SmartBCH is not a problem. It is not something for BCH holders to be concerned about. In fact, SmartBCH burning is a huge positive for BCH holders. All BCH holders benefit from the coin burn, without taking any action and whether they use SmartBCH or not. The key benefits are:
- Increased scarcity: SmartBCH burn reduces the supply of BCH, thus raising the price per coin. In this way, the users of SmartBCH are essentially paying indirect dividends to all BCH holders and increasing their economic power. This price rise is beneficial of itself, and further amplified by the increased interest of outside investors towards coins that have a consistently rising price.
- Increased miner profitability: The ongoing SmartBCH burn incentivises miners to mine on the BCH network to ensure they have a solid BCH investment. They are also incentivised to become a SmartBCH validator to receive SmartBCH transaction fees. These effects help BCH in attracting more Bitcoin miners away from Bitcoin BTC. This adds security and market confidence to the coin.
See also: What is SmartBCH?
See also: Is low hashrate a problem?